Vertiv ($VRT) has been ripping all year and is up 190% YTD fueled by continuous AI & data center demand. I think it has a high likelihood of being **added to the S&P 500 during the Q4 rebalancing** which will be announced Dec 6th. I'll share a brief overview of $VRT and then my thinking behind the S&P 500 inclusion.
*Position*: $VRT shares, 2025 & 2026 leaps
*Disclaimer*: not financial advice, do your own research
*Other analysts if you don't trust random redditors:*
\- RadnorCapital on X
\- Institutional analysts: [NASDAQ $VRT](https://www.nasdaq.com/market-activity/stocks/vrt/analyst-research)
# Company Analysis
**High level company overview:**
[Vertiv Holdings Co.](https://www.vertiv.com/en-us/) *engages in the design, manufacture, and service of critical digital infrastructure technology that powers, cools, deploys, secures and maintains electronics that process, store and transmit data. It also offers power management products, thermal management products, integrated rack systems, modular solutions, and management systems for monitoring and controlling digital infrastructure.*
**Leadership team:**
[Mr. Albertazzi?? absolute stud + italian](https://preview.redd.it/gluw4pmapw1e1.png?width=2552&format=png&auto=webp&s=9514eeb811f9d6fe57a756932c46dc81c9548d82)
**Financial Overview**:
Strong financials across the board and continue to raise guidance. 2024 guidance confirmed, data is here:
Net Sales: $7,805M, organic up 14%
Adj. Operating Profit: $1,485M
Adj. Operating Margin: 19.0%, up 370 bps
Adj. Free Cash Flow: $1,000M
Another overall view from today's investor day presentation, the full deck can be found here: [Nov 18 - Investor Day](https://s23.q4cdn.com/959471387/files/doc_presentations/Vertiv-2024-Investor-Event-Presentation.pdf).
[Balance Sheet Metrics](https://preview.redd.it/ed3ayuigow1e1.png?width=2552&format=png&auto=webp&s=8471b4d6ccead1f63e7929882fe38b85ed9930f1)
Fundamentally I think they have some **key advantages** that will allow for them to continue to dominate the market:
(1) AI-Demand & Margin Expansion: Multiple levers for continued further expansion of adjusted operating margin to \~25% in 2029 (Slide 14 & 36)
(2) Product Leadership: Vertiv services provide unmatched critical digital infrastructure support (Slide 26-28)
(3) Flexible Capital: $12.5B of capital deployment through 2029. Up from $6.5B at Nov 2023 Investor Day (Slide 48)
(4) Energy Demand: Power and cooling capabilities are already crucial today, as energy demand surges, efficiency and cost will become a major factor
**Risks**
\- AI Bubble: tbh I'm not a believer in this narrative but its something to consider since their sales are driven by AI related companies
\- $NVDA: $VRT trades with $NVDA (so does the market in a way) but if you pull up the charts there is high correlation. Also $NVDA ER is tomorrow
\- Valuation: They trade at a 81.86 PE ratio
# S&P 500 Inclusion
The S&P 500 index rebalancing occurs 4x/year with the next one coming up. [SP Global](https://www.spglobal.com/en) announces the additions to the index which will replace companies that have underperformed and will be removed.
S&P rebalancing presents an opportunity to trade based on predictions of which companies will be added/removed as there is potential for a \~5-10% price increase. In short, the rebalance forces institutions who follow certain indexes to buy the stock as it is now in the index & generally there is a positive impact on company's reputation.
Although the selection committee has requirements for eligibility which can be found here: [SP 500 Criteria](https://www.spglobal.com/spdji/en/documents/methodologies/methodology-sp-us-indices.pdf), there is a bit of thematic flexibility. By definition the index is "a market cap-weighted index of US large- and mid-cap stocks." Typically companies need to be $18B or larger in market cap and historically profitable. Negative trailing EPS, high volatility, recent IPO, etc. may restrict a stock from eligibility.
Below is the **SP 500 index sector weighting** (as of Nov 14):
Technology: 33.32% | Financial Services: 13.19% | Consumer Cyclical: 10.80% |. Healthcare: 10.54% | Communication Services: 9.03% | Industrials: 7.58% | Consumer Defensive: 5.56% | Energy: 3.44% | Utilities: 2.54% | Real Estate: 2.17% | Basic Materials: 1.83%
**Why Vertiv ($VRT)?**
* Thematic fit: the index is focused on representing the best large/mid cap companies in the US and $VRT fits the industrial/energy category (the industry will get more love under the new administration), it fits the innovation/technology aspect, and of course the energy/AI theme
* Solid earnings and growth: self-explanatory in the company financial analysis above
* Strong momentum: this is important and imho, an underrated factor. A great example of this is Palantir ($PLTR) which btw pumped like 10% off of the news. Now I know r/wallstreetbets has a love/hate relationship with $PLTR but put that aside for now (it was added to the index around $35)
**Rebalance Timeline**: [Q4 2024 ](https://www.nyse.com/publicdocs/ICE_NYSE_2024_Yearly_Trading_Calendar.pdf)
\*based on the usual schedule, check the website for official announcements
* Quarter End Date: Dec 31
* Announcement Date: Early December (typically 1st week)
* Rebalance Date: Dec 20 (typically 3rd Friday)
# Closing Note
I will be waiting until after NVIDIA reports earnings on 11/20 to make any adjustments to this trade or to rethink my thesis. Would recommend this especially if you do not already have a position in $VRT. I could be completely wrong. God speed!
POST NVIDIA ER UPDATE (Edit 11/21)
- $NVDA great earnings, beat expectations, and currently trading green in the pre market
- $VRT might not pull back at all since the momentum is continuing and they literally talked about the need for data centers and cooling solutions on the ER
- IF and that’s an IF we pull back, look for the $127/$130 level to buy in